Fed Bank President suggests there may be more rate hikes in store

The Federal Reserve may not be done raising interest rates yet, according to a report released on Wednesday, indicating that inflation remains stubbornly high even as the labor market has been improving. Federal Reserve…

Fed Bank President suggests there may be more rate hikes in store

The Federal Reserve may not be done raising interest rates yet, according to a report released on Wednesday, indicating that inflation remains stubbornly high even as the labor market has been improving.

Federal Reserve Bank of New York President William Dudley said he believes that “if we take the current degree of uncertainty in the economy into account, it is appropriate to move now at a gradual pace.” However, he also noted that inflation remains “tentatively close” to the 2 percent goal the Fed has been working toward for some time.

Inflation is a major factor in the Fed’s interest rate decisions, since it is intended to serve as a signal to the market as to when the central bank will be raising rates. At 2.9 percent in August, inflation is still well above the Fed’s 2 percent target and the Bank of Canada’s 3 percent target.

On Wednesday, Dudley acknowledged that “slack in the labor market remains substantial” and that wage growth remains subdued. He also noted that businesses have not yet begun to hire workers who would have been laid off as part of the reduction in the number of workers on furlough as a result of recent hurricanes.

Unemployment in August reached 4.4 percent, a number that will be revised on Friday. The rate fell because fewer people entered the workforce.

Wage growth has been weak, at around 2.2 percent in August. The average hourly earnings of workers between the ages of 25 and 54 increased at their slowest pace since January 2017.

Elsewhere in the report, Dudley sounded a more optimistic note on the economic outlook. He noted that since the last Fed meeting, the markets had lost just under $2 trillion in value. He credited “some of this modest loss in value to the volatility and uncertainty associated with the recent hurricanes.”

Dudley also commented on the United Kingdom’s decision to leave the European Union, noting that “the near-term risks are clearly tilted to the downside,” but that the geopolitical risk is likely to dissipate over time.

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